• What will central bankers do next?
• Eurosystem trims staff numbers
• Governors, Your term is up …
• Mario Draghi in the hot seat
• Does safe mean it?
• Greenspan’s last bow
• Euro ‘War of the words’ CONTINUES
• First woman takes over as SBP CHIEF
• Bundesbank - OR THINK TANK?
• Foggy view of greenspan
• White House “moving quickly” on Fed vacancies
• Dick Fisher gets into his stride
• Dirk Witteveen to chair Joint Forum
• Padoa-Schioppa to join IASB
• Lord Woolf chairs Financial Markets Law Committee
• Philadelphia Fed President to leave
• Macfarlane defends RBA appointments
• Ian plenderleith

What will central bankers do next?

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Eurosystem trims staff numbers

Total staff numbers in the central banks of the Euro area have fallen below 50,000 for the first time, according to the new 2006 edition of the Morgan Stanley Central Bank Directory (compiled and published by Central Banking Publications). Towards the end of last year they employed 49,558.5 central bankers (the unfortunate 0.5 of a person was recorded as being on the payroll of the central bank of Ireland), a cut of 11.5% since 2000. Big reductions of 18% or more have taken place in Germany, Spain, Belgium and Finland. However the euro area still packs in 16.1 central bankers for every 100,000 of the population, compared with 6.8 in the United States and only 3.1 in the United Kingdom.

Mario Draghi in the hot seat

Mario Draghi, newly appointed governor of the Banca d’Italia, is expected to take up his job in mid-January. Draghi's priority will be to introduce reforms at the central bank, whose prestige was tainted by domestic and international criticism of the previous governor Antonio Fazio. Veteran director general Vincenzo Desario, 72, currently acting as governor, is expected to stay in his job for a few months to help with the overhaul.
 

Does safe mean it?

Mrs Hu Xiaolin, the head of China’s State Administration of Foreign Exchange (SAFE), said last week that the agency wanted to "perfect the management” of China’s foreign-currency reserves. SAFE planned to “actively explore more efficient use of our reserve assets, to improve the currency structure and asset structure of our reserves, and to continue to expand the investment areas."

This came among a list of general objectives, and contained nothing startlingly new. However, some analysts interpreted it as a signal of intent to move away from the dollar to other currencies over the medium term.

Mrs Hu and her able managers such as Wei Benhua will have been encouraged by the fact that the statement didn't have a noticeable or immediate impact on currency trading. This lack of impact may well make them feel they have room to proceed with gradual diversification without disturbing markets.

After all, they will only be following the example of many other central banks that are spending a lot of money on upgrading risk management skills precisely in order to feel comfortable as they add more and more high-risk assets to their portfolios.
 

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Greenspan’s last bow

The next January 31 policy meeting will be Alan Greenspan's last as chairman of the Federal Reserve. With the Federal Reserve widely, though not universally, expected to increase rates again, for the 14th time in the past 18 months, some observers believe that this could mark the end of the central bank's tightening campaign.

True, at its December 13 meeting, the FOMC foreshadowed that there was still a need for further tightening:
"The Committee judges that some further measured policy firming is likely to be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance. In any event, the Committee will respond to changes in economic prospects as needed to foster these objectives."

However, the minutes of that meeting, released on January 3, looked forward to the ending of the tightening cycle:
"Although future action would depend on the incoming data, this characterization of the outlook for policy was seen by most members as indicating that, given the information now in hand, the number of additional firming steps required probably would not be large."

"Committee members generally anticipated that policy would likely need to be firmed further going forward. In that process, the Committee would need to be mindful of the lags in the effect of policy firming on the economy. However, it would also have to take account of the effects of the sustained period of favorable financial conditions on asset prices and aggregate demand as well as the resulting possibility of further increases in resource utilization and pressures on prices.

Views differed on how much further tightening might be required. Because the Committee's actions over the past eighteen months had reduced the degree of monetary policy accommodation, members thought that the policy outlook was becoming “considerably less certain” and that policy decisions going forward would “depend to an increased extent on the implications of incoming economic data for future growth and inflation”.

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First woman takes over as SBP CHIEF

The first woman ever to be appointed as the governor of the State Bank of Pakistan (SBP) took up her position on Monday 2 January. Shamshad Akhtar, formerly a senior official at the Asian Development Bank, was named in December as the 14th governor of the State Bank of Pakistan since its inception in July 1948.

"She brings rich experience, both national and international, to her new assignment," the bank said.

A Fulbright scholar at Harvard and visiting fellow at the university's economics department, Akhtar replaces Ishrat Hussain, who retired last month after serving two terms of three years each. Akhtar worked as an economist for the World Bank for 10 years at its Pakistani resident mission.

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Bundesbank - OR THINK TANK?

The German government is planning to cut about 1,500 jobs at the Bundesbank by the end of 2007, Der Spiegel magazine reported, quoting a letter Barbara Hendricks, secretary of state to the finance ministry, sent to Volker Wissing, a member of the lower house of parliament. The magazine also said the finance ministry is considering transforming the central bank into a “think tank” with only 5,000 staff, compared with 13,600 in 2004. However, the German central bank scornfully rejected the reports, insisting that it will continue its structural reform after 2007 without any of this meddling by the government.

Foggy view of greenspan

Former Bundesbank president Hans Tietmeyer thinks it is too early to pass final judgment on Alan Greenspan. Tietmeyer, 74, was speaking with Reuters reporter Stella Dawson on a snowy December day, with fog obscuring the view from his hilltop home above Frankfurt. The reporter regarded that as a fitting metaphor for how he sees Greenspan's legacy.

While he was generous in praising Greenspan's intellectual prowess, Tietmeyer noted the Fed chairman leaves a troubling workload -- a huge U.S. trade and budget deficit largely financed by Asian central banks that could unwind suddenly and destabilize the world financial system.

Tietmeyer said it remains unclear whether leaving U.S. rates so low for so long during the 1990s stock market boom and again after the 2001-2002 crash was the right monetary policy course.

"I am not saying his policy had a negative effect. But we have to take into account that we have not yet reached the end of the road. Just look at the external deficit of the United States, the exchange rates and the distribution of FX reserves."

According to the report, Tietmeyer suspects Greenspan would have benefited if he had paid more attention to the German monetarist tradition in his policy setting. His faith in the U.S. productivity miracle in the 1990s may have blinded him to the dangers of the explosion in money growth during the late 1990s dot.com boom.
"He probably did not look enough at the monetary side."

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White House “moving quickly” on Fed vacancies

White House Spokesman Scott McClellan has said that the administration is moving "as quickly as we can" to fill the two current vacancies on the Federal Reserve Board of Governors. There are currently only five sitting Fed governors, including Greenspan.
"We want to make sure you have - that the right people are in position to continue building upon the great work that the Federal Reserve does," he stated.

According to the Wall Street Journal, possible contenders for the two open Fed governor slots include White House financial-regulation aide Kevin Warsh, a lawyer and former investment banker; Richard Clarida, an international expert who previously worked in the Treasury Department; and Randall Kroszner, a University of Chicago banking specialist who served on President George W. Bush's Council of Economic Advisers.

The current members (in addition to the chairman) are Roger Ferguson, Susan Schmidt Bies, Mark Olson and Donald Kohn.

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Dick Fisher gets into his stride

Globalization is transforming the way central bankers approach monetary policy, according to Richard Fisher, the newly-appointed president of the Federal Reserve Bank of Dallas.

"The old models simply no longer apply in our globalized, interconnected and expanded economy," he said at a conference January 6.” This is why I think so many economists have been so baffled by the length and strength of the current expansion and the non-inflationary prosperity we have enjoyed over the past two decades," Fisher added.

Even with flexible exchange rates, an increasingly global economy means the Fed must consider how U.S. monetary policy influences other countries, and vice versa.
"We actually ponder the depths and resilience of Chinese capacity, for example, when we sit around the table of the FOMC," Fisher noted.

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Dirk Witteveen to chair Joint Forum

The Joint Forum’s parent organisations announced on Wednesday 21 December the appointment of Dirk Witteveen as chair of the Joint Forum for a two-year term beginning January 2006.

The Joint Forum comprises the Basel Committee on Banking Supervision (BCBS), the International Organization of Securities Commissions (IOSCO), and the International Association of Insurance Supervisors (IAIS).

Witteveen, who succeeds Ian Johnston of the Hong Kong Securities and Futures Commission in this role, is an Executive Director of De Nederlandsche Bank and has been involved in the work of the Joint Forum for several years.

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Padoa-Schioppa to join IASB

Paul Volcker is to be succeeded by Tommaso Padoa-Schioppa as head of the trustees who oversee international accounting standards. The appointment of Padoa-Schioppa, a candidate for the role of governor at the Bank of Italy and a former European Central Bank board member, was one of several changes announced in an effort to improve accountability at the International Accounting Standards Board.

The switch from a US chairman goes some way to addressing European Commission concerns that the IASB is not sufficiently sensitive to its European constituents. A spokesman for Charlie McCreevy, EU internal market commissioner, said the Commission welcomed the announcements but stressed that Brussels was particularly happy at the appointment of Padoa-Schioppa. "He is excellently qualified for the post," he said.

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Philadelphia Fed President to leave

Anthony Santomero, president of the Federal Reserve Bank of Philadelphia, will give up his position as president on 31 March. Santomero has headed the Philadelphia Fed for nearly six years, and is completing his year as a voting member of the Federal Open Market Committee.

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Macfarlane defends RBA appointments

Reserve Bank of Australia governor Ian Macfarlane has defended the process used to appoint the central bank's board members following the resignation of Robert Gerard. Speaking to economists in Sydney, Macfarlane said Gerard had an obligation to comply with regulations.
"He has an obligation to disclose it to the treasurer," Macfarlane said.
"I think the reason he resigned is that he should have disclosed the $75 million to the tax office."

Macfarlane said it was right that the government appointed the board members as there needed to be some level of accountability.
"Independence is all very well but also has to be some democratic accountability somewhere," he said.

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Ian plenderleith

Thanks to our eagle-eyed readers in central banks who have drawn our attention to a slip in the last issue of Newsmakers (December 2005) which referred to Ian Plenderleith as being a former deputy governor of the Bank of England. Ian was of course a highly distinguished executive director of the Bank for many years and has just retired as a deputy governor of the South African Reserve Bank.

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